India-First-Global-Insights-Analysis -Sharing-PlatformIndia-First-Global-Insights-Analysis -Sharing-Platform

Putting life into India

, September 12, 2016, 0 Comments

Growth India MarketExpress-inI must say I was surprised to read that Kaushik Basu, once my friend and neighbour, had been succeeded as chief economist of World Bank by Paul Romer, whom I admire as an inventive economist. I do not mean that the World Bank is no place for inventive economists. But it is a sort of cooperative of countries, responsible to its members and financiers. It has to be careful with its money; hence it is rather conservative. A job with it would be lucrative; but it would not call for brilliance. Paul Romer is always roaming across the intellectual world looking for new ideas and new applications. I did not think that bank lending policies would interest him. True, he could roam the entire world, in person, and discover all kinds of fascinating facts and correlations; but that would be a side benefit. Most of the time he would have to read boring reports and sit in boring meetings. Why on earth did he take such a job?

I was not the only one Romer surprised; as he says, he surprised himself. As he says, intellectual excitement comes from a chance to learn; and when one is handing out loans for the uplift of millions of poor people, one cannot take risks and experiment to learn. But then he thought of two colleagues in the Stern School of Urban Management he headed in New York University; they had worked in World Bank and come out with lots of wisdom. Since he would be working with experienced people in World Bank, he thought they would prevent him from making mistakes, and that it might give him too a chance to collect wisdom.

Anyway, now that Romer has taken the plunge, the government of India should make full use of the opportunities created by his appointment. One of his bright ideas is charter cities. Basically, it involves three things. First, a country should divide itself up into provinces centred on its major cities. Second, it should look round the world and find the best run countries. Third, it should give fixed-term – say, 20-year – contracts to the best governments to run each of its cities. That way, it will have a number of simultaneous experiments in government. Over time, it can see which of them is more successful and transfer less well governed cities to the better administrators; and it can learn from the experiments and improve its own governments.

The Indian government has a number of plans which can be combined with the charter city plan. One is smart cities. Their basic idea is rather elementary: that they should be equipped with communication channels for internet. But this is too limited; our cities need to be improved in many dimensions apart from communications – water, power, transport, education, health etc. We should get World Bank to cover all these in a smart city programme. Second, the government has an ambitious plan to develop ports. These too are cities; they too need the same infrastructure improvements as other cities. They too should be included. And finally, Suresh Prabhu is looking for both ideas and money for the railways; they can be integrated into the plans for smart cities.

Next, India has been growing fairly well for the past quarter century; but it has not had a growth driver. Information technology served as one for a quarter century from the 1980s onwards, but only in the south. Trade liberalization brought new activity to the ports after 1991, but only to some ports. There has been no driver for the entire country. Schumpeterian theory, now over a century old, posits that growth is driven by innovation; but India has an undistinguished record of innovation or imitation. That is where it lost out to China in the last quarter century. India built up an enormous education industry which even attracted some students from abroad; but its output of new knowledge is negligible. Romer has, in a sense, renovated the theory of innovation; he calls knowledge nonrival goods. He should be asked to set up a project to work out how India can be turned into an intellectually vibrant country.

At a basic level, we know what has gone wrong: Indian universities specialize in rote learning, and Indian professors are not good at creative thinking. It is not just them; India has a vast network of laboratories and research institutes funded by the government, which are on the whole intellectually unimpressive. That is not true of those who man them; many of the researchers are individually good, and perform brilliantly in foreign environments. It is the environment that is wrong, not the people. How can this be repaired? How can India be made a magnet for bright people? How can they be made productive? Maybe, if we get Romer involved, we will get answers in a few years.

India has been growing at a decent pace for a third of a century. Just why, is not clear; but having been lucky for so long, it will probably continue to grow well in the coming decades. Our problem is not growth, but quality of life and work. We are aware of this; that is what our obsession with poverty is about. But there is considerable intellectual poverty in the way we have approached it. We have turned it into a problem of foodgrain distribution. It is not just that the poor eat too little wheat and rice; they work in poor conditions, they migrate to cities in a haphazard manner, migration is splitting families, too many migrants are living in slums without access to power, water etc. Analysing their condition in terms of traditional development economics is no longer helpful; it is not giving us solutions. Here too, we need intellectual innovation. I do not know whether it can come from Paul Romer; but he will see the problem, and he will have the resources in World Bank to look internationally for solutions.

So his appointment is a rare opportunity for India; what India needs to do is to convince him that it offers him a big enough intellectual laboratory. We should shed some of our complacency and see how poorly we understand our economic situation; if we can then share our bemusement with Paul Romer, he may be able to help us organize our rescue. Big problems require great minds; we should be looking for them across the world and attracting them to India. Paul Romer is one of the best economists who have devoted themselves to problems like ours. If we engage his interest, he can contribute much to our quest for solutions. We are not simply a land of mystics; our economy holds some interesting mysteries. We should use them to beguile good minds. Not everyone can be a good doctor; but we can attract good ones if we exhibit our intriguing ailments. It is a misfortune to be the world’s biggest poor country; but for those who specialize in treating such misfortunes, India is a country of enormous opportunity. By happy accident, Paul Romer has involved himself in poverty treatment; let us become his guinea pig par excellence.